Answer to Question #180676 in Microeconomics for Jagrathi

Question

Why is the price elasticity not calculated for all the quantity and how did we get 0.5 in the solution

Answer 1

Elasticity measures the percentage reaction of a dependent variable to a percentage change in a independent variable. For example, elasticity of -2 means that an increase by 1% provokes a fall of 2%.

Elasticity is easy to compute both in models and in reality, but in the real world it may be difficult to single out the effect of the independent variable on the dependent one, since many variables change at the same time and - furthermore - there often exists a self-propelling dynamics in the independent one.

So, that's why the price elasticity not calculated for all the quantity.

To get 0.5 in the solution, just divide the percentage change in the dependent variable and the percentage change in the independent one. If the latter increases by 3% and the former by 1.5%, this means that elasticity is 0.5.